As part of any investment acumen, anything outside of cash money markets, CDs and T-bills involves some element of risk. In the current market, there are what I would deem economic risks, geopolitical risks, natural disaster risks and pandemic risks. Let’s identify which factors yield-seeking investors need to be consciously aware of, and why they’re so dangerous.
The Specter of Rising Inflation - At present, inflation is running at an annual rate of roughly 2%, a number the Fed and the markets can comfortably live with. Any rate above 3% and Fed policy will likely tighten, sending bond prices lower and bond-equivalent asset classes lower, as well. Trouble Abroad, Or At Home - Natural disasters happen all the time all over the world. The extent of their impact and the particular regions they affect will determine the level of risk to one’s high-yield portfolio. Fears of Mass Disease Outbreaks - Lastly, there is pandemic risk in the form of a disease that spreads out of control. As of last week, the World Health Organization issued a emergency warning about the possible spread of the Ebola virus that is morphing into an epidemic in Africa.